Understanding what product liability insurance entails for your business is critical, especially if your business manufactures or sells goods to customers. We’ve put together a concise guide to product liability insurance in the UK, who needs it, and what scenarios you would want to be covered for.
What is Product Liability Insurance?
Product liability insurance is a type of business insurance that covers the costs of compensation claims made against your company if a person is harmed or property damage occurs as a result of one of your goods. If the product(s) in question were made by your business, you will very certainly be held accountable.
However, even if the relevant product was created by another company, the items bear your company’s name, or you fixed or refurbished them, your company may be held liable. If the original producer of the products you sell cannot be located, your business could be held accountable for any compensation claims. As a result, product liability insurance is critical for many enterprises that sell items.
For example, if you manufacture electrical equipment and poor wiring creates a fire during normal operation, you may be legally obligated to pay compensation for all and any damage caused. Product liability insurance would pay for the legal costs associated with this strategy. This can include consumable products, such as if you run a cookie delivery business and a consumer accuses you and your products of causing food illness.
Which Businesses should obtain Product Liability Insurance?
Product liability insurance is suggested for any business because of the wide range of products it can cover.
- Sells things bearing their company’s or brand’s name.
- Produces their own goods for sale, such as food and beverages.
- Products are repaired, refurbished, or repurposed.
- Imports goods for resale in the UK.
- A mysterious or possibly out-of-business manufacturer sells goods.
Any company that supplies products or goods should consider having product liability insurance in place, as the claim might potentially be passed on and you could be the consumer’s initial point of contact. This does not have to be a retail business; for example, if you are a plumber who supplies and installs an electric shower, you should obtain product liability coverage in the event that the shower causes harm or damage.
If these factors do not apply to your company, the manufacturer will ultimately be held liable. However, your business will still be required to produce specific evidence, such as proof that the products were defective when they were first delivered to you.
What Does Product Liability Insurance Cover?
Manufacturers, distributors, suppliers, and retailers may all be held accountable if a product or component portion causes bodily harm or property damage. That is why even if you consider your business to be a side project or hobby — for example, if you produce and sell your own jewellery on Etsy—you still need to have product liability coverage in place. Although your business may not be your primary source of income, you will still be responsible for many of the same tasks as a larger corporation. Here are some examples of situations in which you could be held liable:
- The product bears your company’s name.
- This applies to both branded goods given out for promotional purposes, such as pens and stickers, and goods available for purchase.
- Your business has fixed or replaced the product.
- If you restore a customer’s product, such as a bike or watch, and end up causing additional damage to that product.
- You import goods from countries other than the EU.
Companies based outside of the EU may not be subject to consumer protection legislation. You, as the retailer, would therefore be liable for any harm or damage caused by the product.
The manufacturer’s identity is unknown.
This could apply to you if you buy your products from third-party vendors or sell used goods. If the manufacturer cannot be identified, you bear the burden of liability.
The manufacturer is no longer in business.
If the company that manufactured your product is no longer in business, reimbursement will be sought from you, the seller, for any damage or injury caused by the product. This is due to the fact that you are unlikely to be able to recoup the costs from the original manufacturer.
Is it better for me to be a manufacturer or a retailer?
A business can be either one or the other. This is determined by the business model and the customers. We’ll go over the responsibilities of each in greater detail in the following section, but first, let’s figure out which category or categories might apply to you. The product’s manufacturer bears the lion’s share of the burden for product liability. This can include things like:
- Manufacturers and dealers who sell their own-brand merchandise
- Any business that repairs modifies, or services an existing product.
- Someone who repurposes or rebrands a previously existing product
- Importers of products from countries where safety standards differ from those in the country where they are sold.
Retailers and distributors, such as stores and sellers, are typically not directly liable in a product liability case, although they still have a duty of care to their customers.
Duty of care in the sale of commodities
By law, commodities must be safe for their intended purpose when manufactured or sold. Accepting the duties here demonstrates that care has been taken to keep the consumer safe and aware of any risks when using the product.
- Instructions for correct use are provided.
- Providing warnings of potential risks from good use as well as threats from improper use
- Taking a proactive approach to safety monitoring and improvement
- Taking early ownership if safety risks are discovered.
Retailers must take reasonable steps to understand the origins and safety of any products they sell and use.
Product liability insurance protects against a compensation claim made against a manufacturer for loss, damage, or injury at any point during three years of using the product. This can be longer in some circumstances. The claim has no maximum limit and is computed based on the severity of the specific situation and the scale of loss.
If a bad product is widely distributed and causes widespread damage, the compensation costs can easily run into the millions. Even compensation for a single customer who suffers a six-month loss of earnings can cost thousands of pounds. As a result, product liability insurance is an essential aspect of your business’s protection as well as the safety guarantees you make to your clients.
Do I need Product Liability Insurance?
Though not precisely a legal requirement, other manufacturers, suppliers, or retailers with whom you work may need you to have product liability insurance in place. Otherwise, whether or not your business requires product liability insurance is mostly determined by the services you offer. If your business falls into one of the aforementioned categories and sells items to the general public, product liability insurance is necessary since merchants can still be held accountable for certain product liability claims. While you may not be directly liable, you still owe a duty of care to your customers, and product liability insurance is frequently an implicit component of that.
Businesses that provide services rather than tangible products, such as consulting or legal advice, would typically require Professional Indemnity insurance rather than product liability coverage. Businesses that make items such as tools or parts for other businesses, on the other hand, should have product liability insurance, and in some industries, such as the construction sector, this is likely to be contractually mandated. Product liability insurance is essential if your business makes any products, whether B2B or B2C (business-to-consumer).
What level of product liability do I require?
It is your job as a business to determine the appropriate level of coverage. Some products may be riskier than others, so make sure that any insurance you choose is suitable for your needs. Common factors to examine include:
- Compensation claims – Does the policy cover a compensation claim if your product causes bodily harm or property damage?
- Contractual requirements – Do any of your contracts with clients specify a minimum level of cover?
Do I need product liability Insurance Cover if I sell used Goods?
Yes, if you sell used goods, product liability coverage is considerably more necessary. When it comes to new items, the manufacturer bears the majority of the liability. However, if your business trades in second-hand goods, such as antiques or charity shops, locating the original maker can be difficult, if not impossible. In this instance, you are held liable.
Purchase of Product Liability Insurance in the UK
Product liability insurance can be purchased directly from an insurer or from a specialised broker through the British Insurance Brokers’ Association (BIBA). Most firms purchase policies that cover them for compensation claims ranging from £1 million to £5 million.
Considerations for Purchasing Product Liability Insurance
- Exclusions – Look over your policy to discover what it doesn’t cover or specifically exclude to ensure you have the correct coverage for your business.
- Requirements – The product liability policy may include quality control stipulations, which you must follow in order to be insured.
How can I lower the Cost of my Product Liability Insurance in UK?
By law, manufactured or sold commodities must be fit for their intended use. Lower product liability insurance premiums may thus be obtained if you can demonstrate that your business is less likely to be engaged in a claimable incident. This might be accomplished by embracing the following duty of care responsibilities, as your business would then be demonstrating to insurers that steps have already been made to keep its customers safe and informed of any product risks:
- Instructions on how to use the business’s products, particularly those you manufacture, are provided.
- Proactively check the safety of your company’s products and make improvements where possible.
- Providing warnings of potential risks associated with proper product use as well as dangers associated with incorrect product use
- Quickly responding to and taking ownership of any safety concerns
If you are a retailer, you should have a thorough understanding of the origins and safety of all the products your business sells and utilises.
Is it Required by Law in the UK to have Product Liability Insurance?
Product liability insurance is not required by law in the UK, but it may be required by manufacturers, suppliers, distributors, or retailers with whom you work. Furthermore, if you are found accountable for an injury, property damage, or death caused by one of your items, you may be sued.
Who is responsible for damage caused by a faulty product?
Manufacturers, distributors, suppliers, and retailers could be held liable under the Consumer Protection Act for any damage, injury, or death caused by their product or any of its component parts. The person deemed accountable, on the other hand, will be determined by the facts of each individual case.
What is the distinction between Public and Product Liability Insurance?
Product liability protects you against bodily harm or property damage caused by an item you created, sold, or provided. However, public liability protects you if someone is injured or their property is damaged as a result of the day-to-day operations of your business.
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